Over the past decade, software companies have evolved from niche players into some of the most highly sought-after businesses in the lower middle market. Whether it’s a vertical SaaS solution powering agriculture, HR, or marketing, or a tech-enabled service firm with recurring revenue, buyers across private equity, family offices, and strategic acquirers are increasingly pursuing these opportunities.

But what’s fueling this growing demand, and what does it mean for both founders and investors?

Why Buyers Are Chasing Software Deals

Three trends are driving buyer interest:

• Recurring Revenue Models
  Subscription-based and license models tend to offer more predictable cash flow. Many buyers appreciate the relative stability of MRR/ARR when compared to project-based service firms.

Example: A SaaS company serving professional services grew to $4M ARR with 90% retention. A private equity buyer found the recurring revenue to be a key factor, offering a strong multiple because the predictable revenue provided a stable return.

• Scalability
  Once the product is built, software often scales with relatively low incremental costs. This scalability generally leads to higher margins as the customer base expands.

Example: A niche SaaS firm in agriculture saw its revenue grow from $2M to $6M in ARR in just a few years, with only modest increases in expenses. A strategic acquirer recognized the potential for continued efficiency and growth, paying a premium for future prospects.

• Industry Consolidation
  Strategic buyers often look to dominate niches, while private equity groups may pursue opportunities to roll up vertical SaaS companies, creating platforms that could potentially sell at higher multiples later.

Example: A marketing SaaS with $3.5M ARR was acquired as part of a larger MarTech platform. The buyer’s ability to cross-sell and scale the product made the acquisition valuable, and the deal was structured with future expansion in mind.

What Founders Should Know Before They Sell

For owners of software firms, the increased demand may present an appealing opportunity for a lucrative exit. However, not every company is truly “ready” to sell. A few key points to consider:

• Growth Beats Size. A $3M ARR company growing at 40% a year is often valued more highly than a $10M ARR company with flat growth.
  Buyers tend to prioritize potential for growth over size alone.
• Owner Dependency Can Be a Red Flag. If the founder is deeply involved in every aspect of the business—product, sales, customer service—buyers may approach with caution. It’s often more difficult to imagine the company thriving without that key individual.
• Clean Financials Matter. Private equity firms and strategic buyers tend to conduct rigorous due diligence. Poorly organized financial records, unaccounted churn, or unclear revenue recognition can potentially disrupt a deal.
• Strategic Value May Exceed Financial Value. A buyer who sees your product as integral to their existing ecosystem might be willing to offer more than a purely financial investor.

Example: A SaaS serving small businesses initially attracted offers around four times ARR. However, one strategic acquirer valued it at five times ARR due to its strategic fit within their broader suite of products.

What Buyers Should Look For

Not all software businesses are equally appealing. Savvy buyers should keep the following factors in mind:

• Retention & Churn Dynamics. Net revenue retention (NRR) and customer churn are often more accurate indicators of business health than top-line revenue growth alone.
• Vertical Focus. Niche players with deep penetration in sectors like ag-tech, HR-tech, or fintech often have more solid competitive advantages than those offering horizontal solutions.
• Team Resilience. A capable and experienced technical team, along with a strong go-to-market strategy, helps ensure business continuity if the founder transitions out of the day-to-day operations.

Key Takeaways for 2025

For Founders:

• Start exit planning early — don’t wait until burnout or exhaustion sets in.
• Highlight recurring revenue and retention metrics, as these are typically more important drivers of multiples than overall size.
• Position your company for strategic value, not just financial value. Finding the right acquirer can substantially impact your exit.

For Buyers:

• Focus your due diligence on customer retention rather than just growth headlines.
• Look for vertical SaaS companies with clear market niches and strong customer loyalty.
• Prepare for competition in the market; a disciplined approach often leads to faster, more favorable deals.

Author Bio

David Jacobs is a business broker focused on software and SaaS companies in the $3M–$20M revenue range. He has successfully guided founders through exits to both private equity groups and strategic acquirers. Learn more at davidjacobsbusinessbroker.com.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute professional financial, legal, or investment advice. It does not guarantee or promise any specific results from applying the information provided in this article. Readers are encouraged to consult with professional advisors for tailored advice regarding their specific business situations.